Chicago-based nuclear electric power generation company Exelon Corporation (EXC) is a leading energy provider with the largest number of electricity and natural gas customers in the United States. The passage of a clean energy bill in Illinois in September to bring the state to 100% renewable energy by 2050 has helped preserve the Fortune 100 energy company’s nuclear fleet. The nuclear energy provider’s CEO celebrated the legislation in the company’s third-quarter financial report, calling it “a critical milestone.”

EXC’s stock has gained 14.6% in price over the past six months. However, it has declined 1.8% over the past month. 

While the company remains on track to finalize the separation of its competitive generation and utility businesses in the first quarter of 2022 to better serve its customers, its continuing competitive disadvantage as nuclear power plants struggle to compete on price against cheaper existing sources of energy could foster  bearish sentiment toward the stock.

Here is what could influence EXC’s performance in the coming months:

Clean Energy Investment Approval

This month, ComEd, a unit of Exelon Corporation, received approval from the Illinois Commerce Commission (ICC) for the company to invest  to enhance reliability and enable the transition to clean and renewable energy. The investment will lead to a $46 million increase in rates, which will add 16 cents to the average monthly bill for residential customers. Also, it will be the first electric delivery rate increase in four years. The company believes that this smart investment should enable it to meet its customers’ needs while achieving clean energy goals.

Nuclear Energy Industry Challenges

According to the U.S. Energy Information Administration, nuclear power capacity is expected to decline by more than 20 GW through 2050. In September, a surge in spot uranium prices  pushed up the cost of electricity produced in nuclear plants. Moreover, higher nuclear fuel cost in the long term could harm nuclear power's competitiveness against cheaper forms of renewable power, particularly natural gas and government-subsidized renewables. Last year, EXC said that its plants were losing hundreds of millions of dollars, because plants constructed decades ago continue to struggle to compete with other forms of energy in today’s market.

Underwhelming Financials

During the third quarter, ended September 30, 2021, EXC’s PECO business unit’s net income decreased 19.6% year-over-year to $111 million. Its adjusted operating earnings fell 19.1% from the prior-year quarter to $114 million, due mainly to an increase in storm cost activity, net of tax repair deductions. Furthermore, the company’s BGE segment’s net income declined to $36 million from $53 million in the third quarter of 2020.

EXC’s 31.3% trailing-12-month gross profit margin is 26.9% lower than the 42.8% industry average. In addition, its 4.8% net income margin compares with the 11.2% industry average. Furthermore, its levered free cash flow margin is negative 0.3%. Also, its 5% trailing-12-month ROE is 47.5% lower than the 9.6% industry average.

POWR Ratings Reflect Uncertainty

EXC has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. EXC has a C grade for Momentum. This is in sync with the stock’s price returns over the past month.

In terms of Quality Grade, EXC has a C. The stock’s lower-than-industry gross profit margin is consistent with its Quality grade. Also, it has a Stability grade of C, indicating that the stock is volatile than its peers.

In addition to the grades I have highlighted, one can check out additional EXC ratings for Sentiment, Growth, and Value here. EXC is ranked #11 of 57 stocks in the F-rated Utilities – Domestic industry.

Bottom Line

Although Illinois lawmakers’ decision to pass a comprehensive clean energy bill in September has allowed EXC to keep its money-losing nuclear power plants open, the stock’s upside could be limited given that the nuclear power plant operator is struggling to compete with cheap natural gas and subsidized wind and solar. So, we think investors should wait for the company to show further strength in its business before investing in the stock.

How Does Exelon Corporation (EXC) Stack Up Against its Peers?

While EXC has a C rating in our proprietary rating system, one might want to consider looking at its industry peer, Brookfield Infrastructure Corp. (BIPC), which has a B (Buy) rating.

EXC shares rose $0.09 (+0.17%) in premarket trading Monday. Year-to-date, EXC has gained 32.04%, versus a 27.14% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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